Memo: Where Grocery Is Going (2053)

The future of the grocery industry is at a crossroads. Fiscal conservatism, technological advances, labor shortages, and shifting consumer preferences will dramatically shape the grocery landscape over the next 30 years. This essay examines these influences and proposes a strategic roadmap for the industry. According to recent data by global data science company Dunnhumby, there’s been a notable shift that will influence the rest of this report. For the last decade, speed of delivery and overall convenience were at the center of many buying decisions. Today, pricing and promotions may be eclipsing the perks of the eCommerce age. From the extensive Dunnhumby report:

2022 was all about finding the right products at the right prices and less about saving time. “Price, Promotions, and Rewards” has always been the most important need in our model, and it likely has been the most important customer need for much of the past 100+ years. The story of who has won and lost is also a story of the consumer’s insatiable appetite for a better deal.

The grocery industry, like any other, is not immune to the tides of change. I actually believe that it’s a leading indicator for what other industries may encounter. From economic concerns and the impact of generational behaviors to technological advancements, the industry is facing a multifaceted wave of transformation. Retail Dive’s recent publication of Dunnhumby’s report, “Grocery 2053: A Data-Driven Gaze into The Future,” provides insightful data, unraveling the complex layers that will impact grocery consumption over the next three decades. By analyzing these influences, we can forecast the shape of the grocery industry over the next 30 years. The Retail Dive summary provided great insights like these:

Harris Teeter, Wegmans, Publix and Sprouts Farmers Market are among the retailers whose market share is most vulnerable to fiscal conservatism over the next 30 years, according to Dunnhumby. Overall, Amazon, H-E-B, Costco, Sam’s Club and Walmart are best positioned to take advantage of the trend between now and 2053, when Dunnhumby expects the U.S. grocery retail industry to hit $1.9 trillion in sales, more than twice its size today.

At the heart of the industry’s evolution lies the pulse of fiscal conservatism, whose reemergence is driven by consumers’ worries about their economic future. Dunnhumby’s extensive survey of over 70,000 responses shows that price remains a decisive factor in grocery purchases, regardless of income. Generations Y and Z, more deeply impacted by the Great Recession and Covid-19 pandemic, express heightened concern over financial matters. While health and sustainability compete with cost as primary stressors for higher-income shoppers, cost is the primary obstacle for 60% of consumers seeking healthier food options.

This fiscal conservatism, expected to continue until 2053, signals a market shift toward value-oriented retailers. From Dunnhumby’s executive summary:

Between now and 2053, we see retailers doing much more: offering a grocery-helper budgeting AI, becoming their Customer’s trusted financial partner, and launching their very own private-brand-only, money-saving format of the future.

Amazon, H-E-B, Costco, Sam’s Club, and Walmart are poised to benefit from this trend, while the market share of Harris Teeter, Wegmans, Trader Joe’s, Publix, Sprouts Farmers Market, and other more premium stores might face challenges. This doesn’t spell doom for premium and specialty grocers, but it does necessitate strategic store locations, product differentiation, and customer experience enhancement to thrive.

Technological transformations will significantly impact how we manufacture and deliver products. I believe that it’s at times farfetched, but it’s important to recognize nonetheless. Dunnhumby’s Go-To-Consumer strategy suggests a potential revolution brought about by 3D food printing, synthetic biology, gene editing, and bioengineering. These technologies promise more sustainable and efficient value chains, valued at $72 billion. Drone deliveries, underpinned by a mobility tech market valued at $236 billion, could become the norm, eliminating the risk of disturbances like merchandise being stuck at ports.

The report also cited the promise of advanced connectivity, quantum computing, AI, machine learning, and no-code next-gen software development – collectively valued at $336 billion – powering the next phase of consumer insights. Retailers who plan to integrate these technologies into their vertical chains and customer experience strategies can tap into profound insights and emerge on top.

The digital revolution, driven by the rising importance of data privacy and the reduction of logistical waste, signifies a new frontier for customer engagement. Companies are expected to establish a presence in Web3, a space valued at $110 billion, reflecting the shift towards a more decentralized and user-empowered digital world. And generative AI, which we covered extensively here, opens opportunities for grocery retailers to actively participate in AI’s development, vetting, and regulation for AI-assisted grocery and commerce.

Virtual reality, and the advent of the metaverse, will redefine consumer engagement. With companies like Apple betting on mixed-reality headsets, it is wise for grocers to stay abreast of these technological innovations, even if they are in their early stages. I thought that this insight was pretty valuable:

Although the metaverse has diminished in importance in the new-tech hype cycle, its steady evolution over the last two decades suggests that it may reappear in a future horizon. The question is, just how soon will we get to that future? Apple’s recent announcement of a state-of-the-art mixed-reality headset is a strong indication that the technology world is still betting on the metaverse. Our position is that the metaverse is here, but still in the very early stages of adoption. It would be wise for grocers to keep track of all the innovation.

But back to physical reality. Labor shortages, another consequence of the pandemic, are a persisting challenge. Solutions lie in continued investments in AI and automation for unfilled jobs and in initiatives like the Kroger tuition program, Giant Food stores scholarships, Publix tuition reimbursement, and Walmart’s $5 billion upskilling initiative, which exemplify investments in education, skills training, credentialing, and employment frameworks. Amazon has its own upskilling program – 10 to be exact.

Career Choice—one of Amazon’s 10 upskilling programs—pays for educational opportunities, ranging from English as a second language classes to four-year college degrees for 750,000 eligible frontline workers. There’s no repayment clause should they leave the company. With 400 course options, 300 colleges, and 130,000 total participants to date, Career Choice is Amazon’s most expansive upskilling program. In September 2021, the retail giant pledged to invest $1.2 billion through 2025 in Career Choice and other upskilling efforts.

Amazon’s programs see success as illustrated through two measures: course completion and post-graduation job placement rates. The goal: retention and reinvestment. In each case, these upskilling strategies reflect the awareness that the industry is changing rapidly, wave by wave. The grocery industry, therefore, needs a comprehensive strategy to navigate these waves. In the short term, retailers can continue helping customers save money where it matters most, develop protocols with suppliers or accept price increases, and reassure customers through clear communication about mitigating impacts, such as inflation.

In the longer term, a more visionary approach is necessary. Retailers could consider developing AI-powered grocery budgeting tools, morphing into their customers’ trusted financial partners, and even launching private-brand-only formats of the future. Such strategies could allow grocery businesses to better meet customer needs while leveraging the forces shaping the industry.

The role of technology in this transformation is inescapable. Artificial intelligence and next-gen software development have the potential to revolutionize the way the grocery industry operates and interacts with its customers. The utilization of these technologies, coupled with a dedicated focus on data-driven insights, will enable retailers to provide fully integrated customer experiences and stay ahead in the fiercely competitive market. It’s imperative for grocery retailers to actively take part in the development and regulation of AI-assisted grocery commerce.

As the grocery sector steps into the metaverse, the way it engages with customers will evolve dramatically. Traditional brick-and-mortar grocery shopping could be supplemented, or in some cases replaced, by immersive virtual experiences. The successful navigation and adoption of these platforms could shape the future success of grocery retailers.

Summary

I believe that it comes down to people first. Investments in education, skills training, and employee development will not only help retailers address this issue but also serve as powerful marketing strategies. By portraying themselves as conscientious employers committed to their staff’s welfare and development, retailers can distinguish themselves in the crowded market.

The grocery industry is set to undergo a profound transformation in the coming decades. Amidst economic concerns and technological advancements, the industry must adapt to better serve its customers. Fiscal conservatism, technological breakthroughs, labor shortages, and the digital revolution are all ingredients in the recipe for the grocery industry’s future. Retailers who can effectively blend these components while continuously innovating to meet customer needs are those who will thrive until 2053 and beyond. The evolution of the grocery industry, therefore, hinges on its ability to transform challenges into opportunities, ensuring it remains a central part of our lives for generations to come.

The goal of grocery retailers will be to combine ease of purchase with an awareness of the pricing pressures that will come to define the next 30 years. Human resources, data science, and the employment of technologies available will determine which retailers do the defining.

By Web Smith | Edited by Hilary Milnes with art by Alex Remy and Christina Williams

Memo: That Quiet TikTok Lawsuit

Go back to the year 1988. This has all come about thanks to a former Supreme Court nominee, his Blockbuster video rental history, and a quote from a journalist pursuing insights into the high court’s nominee’s life:

The only way to figure out what someone is like is to examine what that someone likes — take a hard look at the tools of leisure he uses to chip away life’s rough edges. (Harvard law Review)

This was the uneven birth of the VPPA (Video Privacy Protection Act). Now fast forward to the retail media craze, a TikTok and its pixel are under fire and the Michael Kors brand is at the center of the lawsuit. There is a caveat to all of the upside, a specific kind of off-site advertising – which is often supplied by first-party data – is facing legal action. I explained this derivative of retail media in “Step Function.”

Off-site advertising, which refers to ads that are shown to audiences outside of a marketplace’s website or app, has traditionally relied on third-party data to target and measure effectiveness. However, by analyzing the buying patterns, search queries, and preferences of their users, marketplaces’ advertising products have offered a higher rate of success. Additionally, recent changes in privacy regulations and the increasing emphasis on user privacy have led to a shift towards using first-party data in off-site advertising.

Amid rising tensions between the United States and China, concerns have escalated over the protection of American users’ data on TikTok, the popular platform owned by Chinese company ByteDance. As TikTok’s popularity surges, with over 150 million American users as of 2023, its data privacy practices have come under scrutiny, inciting discussions about applying existing laws, such as the Video Privacy Protection Act (VPPA), to modern tech companies.

American politicians are looking for any reason to do away with TikTok’s influence over the nearly half of all Americans who have downloaded the app. If a recently filed lawsuit does its part, the state by state privacy laws (with California leading the trend) may give way to federal privacy actions that can lead to national actions against technology companies.

The California Civil Lawsuit

I read the recently (and quietly) filed case: Gabriella Hernandez v. Michael Kors (USA), Inc. that was filed on June 13, 2023. As the case proceeds, it will surely become a lightning rod for interest in national security and the over-reach of big tech.

This case presents a class action complaint filed by a plaintiff, a resident of California, against a company that operates michaelkors.com. The plaintiff alleges that the defendant, through its website, is violating the Video Privacy Protection Act (VPPA). The primary concern is that Michael Kors allegedly reports viewing activities on its site to TikTok, which is owned by ByteDance. ByteDance, as the complaint suggests, is controlled by the People’s Republic of China (PRC) and is known to have used TikTok to spy on Americans under the PRC’s orders.

Under the VPPA, it is illegal to knowingly disclose a person’s personally identifiable information (PII) based on their video viewing habits to third parties without their consent. The plaintiff, identifying as a “consumer advocate” or a “tester”, claims that Michael Kors is doing precisely this by using TikTok’s Pixel code to report page view events to TikTok, which, in turn, could provide information to the PRC.

The plaintiff and others in the class action suit (defined as all in the United States who played video content on the website and whose PII was disclosed by Kors to any third party during the two years preceding the filing of this action) seek judgment against the Kors for violating the VPPA. The defendant, Michael Kors, potential defense may need to address whether it knowingly disclosed PII, whether such disclosure falls under the VPPA’s definition of “ordinary course of business”, and whether there was any form of consent from the users. But this isn’t the only example of TikTok’s recent VPPA stumbles.

TikTok and Data Protection Concerns

Recent reports from South China Morning Post and Forbes suggest that TikTok may have misled American authorities about the actual location of stored user data, particularly the sensitive information about American creators who sign up to earn money through the app. While TikTok claims that the majority of U.S. user data is stored in the U.S. and Singapore, investigations reveal that the financial information of TikTok’s largest American and European creators is stored on servers in China. Here is a key excerpt from the Forbes report, highlighting TikTok’s potential defense:

In TikTok’s response to their questions, the company said there is a difference between “U.S. user data collected by the TikTok app” and information that creators give to TikTok so they can be paid for content they post. The former is stored in TikTok’s data centers in the U.S. and Singapore, TikTok said. It did not explicitly state where the latter is stored. A trove of internal documents obtained by Forbes, and several people across different parts of the company familiar with the matter, have shown that tax forms, social security numbers and other information from creators and outside vendors has been stored in China; payments to both are managed through tools from TikTok’s China-based parent ByteDance.

U.S. legislators, concerned about potential data exploitation by the Chinese government, have introduced legislation aimed at preventing American data from being used by foreign adversaries. This legislation, if passed, would control exports of personal data, including data handled by companies like TikTok, directly to restricted foreign governments. SCMP explained:

The bill would direct the Commerce Department to identify categories of personal data that could harm US national security and create a list of high-risk countries where sensitive data exports would be blocked.

In this context, we may consider how the VPPA precedent might become a tool for American politicians, regulators, and judicial activists to address the data protection issues at stake, possibly substantiating a federal ban on TikTok’s practices or a full ban on the platform.

The VPPA and Modern Tech Companies

The VPPA was enacted in 1988 in response to a violation of Supreme Court nominee Robert Bork’s video rental history privacy. The Act prohibits the wrongful disclosure of video tape rental or sale records, making it a landmark piece of legislation in the realm of privacy protection. While the Act was designed to protect physical video rental records, it has been invoked in legal cases involving modern digital streaming services. The reach of the VPPA extends to the data privacy concerns raised by the digital era and could apply to companies like TikTok, which, while not primarily a video rental service, does collect, store, and potentially distribute user data in a similar manner.

The critical aspect here is the unauthorized disclosure of “personally identifiable information” about users’ video consumption habits. In the context of an app like TikTok, if it were found that the company was sharing personally identifiable viewing data with third parties without users’ consent, this could potentially be seen as a violation of the VPPA. However, how the VPPA applies to platforms like TikTok would likely hinge on the specifics of the case and the way the court interprets the law in light of technological advancements.

If lawmakers and legal practitioners interpret the VPPA to cover digital services, there could be significant implications for TikTok and similar platforms. Under the VPPA, TikTok’s collection and overseas storage of data, particularly if disclosed without consent, could potentially be deemed illegal. The acknowledgement by TikTok of storing sensitive American creator information in China could be seen as a violation of the VPPA, if the Act is deemed applicable. This could provide legal grounds to restrict TikTok’s operations in the U.S. or perhaps ban the platform altogether.

The VPPA also provides for civil remedies, allowing individuals to seek redress if their privacy rights are violated. As a result, users whose data is being stored in China could potentially sue TikTok, leading to substantial legal and financial implications for the company. However, applying the VPPA to TikTok is not straightforward and faces significant challenges. The VPPA was drafted long before the advent of social media and may require reinterpretation or amendment to extend its protections to platforms like TikTok. Additionally, the application of the VPPA to foreign companies raises complex jurisdictional issues that courts will need to resolve.

Summary

As concerns about data privacy grow, there is a strong case for leveraging existing legislative tools like the VPPA to safeguard the data of American citizens. Not only does the VPPA hold potential in challenging TikTok’s practices directly, but it also sets a valuable precedent for how privacy law can evolve to meet the needs of an increasingly digitized society.

By applying the principles of the VPPA to modern tech companies, regulators, politicians, and judicial activists could demonstrate their commitment to data protection, setting the stage for more comprehensive privacy legislation that is in step with today’s technological landscape. While applying the VPPA to TikTok’s practices might necessitate overcoming legal hurdles, the precedent could prove useful in the broader goal of promoting and enforcing data privacy. The TikTok case also serves as a cautionary tale for tech companies operating globally while dealing with the legal rights of individual American states, highlighting the potential consequences of inadequate data privacy practices. The scrutiny that TikTok is currently under is likely to impact its standing in the United States.

While the application of the VPPA to TikTok’s situation may be complex, the potential of this precedent to strengthen the regulation of modern tech companies is undeniable. It emphasizes the necessity of clear, robust legislation to protect data privacy in the era of digital interconnectedness. As this issue unfolds, it will be important to watch for potential changes to privacy legislation and the broader influence this could have on the internet media industry at large.

By Web Smith | Art by Alex Remy and Christina Williams 

Part I: Where Natsec Meets Commerce

Deep Dive: Fridman’s Law

On Generative AI and where retail goes next. On most days, I sit in a home office and read, write, think and hope to assimilate all of what I see, experience, and feel into unique human perspectives on complex topics. Unfortunately for me, generative artificial intelligence does much of that to the nth degree. Will we still value human-made creativity? The answer to that question is complicated. In April 2021, computer scientist, podcaster, and artificial intelligence researcher Lex Fridman tweeted the following:

Humans have been gradually merging with AI for 20+ years. At some point in this century, as a collective intelligence system, we will become more AI than human and we won’t notice.

Let’s call this “Fridman’s Law” (not to be confused with Friedman’s Law). We are nearing the point of 50%+ AI as our collective intelligence system. There are few better experts than him. Fridman – an emerging celebrity for his sheer thoughtfulness and openness to debate – is as prescient as ever. Generative AI, or artificial intelligence that can create new content by following prompts, is already making waves in various industries. From writing Drake hits to creating mind-blowing art, AI has already exceed genius levels of creativity. But, what about our shopping habits? How will generative AI shake things up in the world of retail? According to a recent Axios report:

Retail and packaged consumer goods companies would be in line for $660 billion a year in productivity gains, if “use cases were fully implemented” — which would mean a 44% boost to profits.

Picture this: You’re walking down a bustling street, and suddenly, you spot a store that seems to have been designed just for you. The colors, the layout, even the products on display – it’s like someone reached into your brain and pulled out your ideal brand fit. Imagine if this wasn’t a one-time thing, but rather the norm. Generative AI will revolutionize the way brands develop their retail spaces, making them more personalized and tailored to individual consumers by using data. It will analyze droves of information about consumers, from their shopping habits to their social media activity, and use this data to create customized store layouts and product offerings. This means that each store will be unique, catering to the specific needs and desires of its customers.

The rise of generative AI promises to revolutionize the retail and CPG landscape.

In the ongoing narrative of AI’s impact on various industries, retail and consumer packaged goods (CPG) hold a position of considerable interest. The sector stands on the brink of unprecedented transformation as generative AI – systems capable of creating new content – makes its mark. As we stand in 2023, we witness the blossoming of myriad start-ups leveraging this technology, and predict a near-future where more than 50% of consumerism and brand development will be influenced by generative AI.

Let’s dig in to the impact that analysts are anticipating.

Generative AI’s Impact on Brand Development

The traditional model of brand development has been largely human-driven, with marketers and product developers relying on customer surveys, focus groups, and trend analysis to create products and campaigns that resonate with the target audience. The ensuing process involves brainstorming, designing, testing, and iterating – a cycle that can be time-consuming and susceptible to error.

Generative AI promises to revamp this process, accelerating and enriching each step with data-driven insights and automation. For instance, AI’s ability to quickly aggregate and analyze market data allows for rapid testing of concepts, ideas, and models. Businesses are already leveraging these capabilities, using AI to generate style suggestions based on customer preferences, thereby improving their overall customer experience.

Generative AI will also help brands stay ahead of the curve when it comes to trends. The technology will be able to predict what the next big thing is before it even hits the market, allowing brands to develop and stock their stores with the hottest products.

Further, AI’s generative powers extend to creative tasks such as copywriting and visual design, areas previously considered solely human domains. By digitally generating numerous variations of copy and design, AI enables faster, more diverse ideation, allowing brands to quickly adapt to changing market trends and consumer preferences.

With smarter algorithms and predictive analytics, brands will be able to anticipate consumer demand and adjust their inventory accordingly. This means fewer out-of-stock items, less overstock, and an overall smoother shopping experience for everyone involved.

Generative AI and Consumerism

Generative AI also offers a dramatic shift in the consumerism landscape. In an era where personalization is paramount, AI’s ability to tailor experiences to individual preferences revolutionizes how consumers interact with brands. This extends from choosing products to ordering ingredients for a meal or interacting with chatbots for product recommendations.

You’ll walk into a store and find exactly what you’re looking for – or perhaps something even better that you didn’t know existed. With the personalized shopping experiences I mentioned earlier, it’s likely that we’ll see a shift towards quality over quantity. Instead of buying a ton of cheap, disposable items, consumers will be more inclined to invest in products that are tailored to their specific needs and preferences. This could lead to a decrease in fast fashion.

This advancement heralds a new era of “hyper-targeting”, where retailers use generative AI to sift through massive amounts of data, identifying precise segments of consumers that are a perfect fit for their products. The information derived from such analyses allows for highly targeted advertising, ensuring that consumers are exposed to products and services they are likely to be interested in.

The Transition and Challenges

The transition to a world where AI significantly influences brand development and consumerism is not without challenges. The deployment of AI systems raises important questions around the accuracy and veracity of generated content. Brands need to ensure the quality and reliability of AI-produced material, and instigate safeguards against potential adversarial attacks.

Moreover, AI’s ability to analyze and utilize personal data opens a Pandora’s box of privacy concerns. As retailers move towards a new form of hyper-targeting that we believed we’d left behind with the eschewing of third-party data usage, they need to balance personalization with respect for consumer privacy, a task that requires stringent data governance and ethical AI practices.

Summary

By 2030, the retail and CPG landscape is set to undergo a paradigm shift, driven by the capabilities of generative AI. It will change the very fabric of brand development, accelerating ideation, and enriching creativity. It will also redefine consumerism, paving the way for hyper-personalized, data-driven consumer experiences.

Yet, as we navigate this shift, the need for a human touch remains paramount but expect that shift to happen faster than any of us will appreciate. AI should augment human creativity, not replace it. Ethical considerations, especially regarding data privacy, must be central to AI deployment.

The journey towards this AI-dominated future will be fraught with challenges and opportunities. But, if navigated thoughtfully, the impact of generative AI on brand development and consumerism could usher in a new era of retail – one marked by enhanced creativity, efficiency, personalization, and above all, value for both businesses and consumers.

As we approach 2030, the retail industry stands poised to become a testament to the potential of generative AI. Yet, as we journey forward, we must remember that this technology should serve as a tool to amplify human potential, not replace it. Retailers and CPG companies that can strike this balance will thrive in the new era, crafting brands that resonate on a personal level and fostering a customer-centric model of business. The veracity and quality of AI-generated content must be held to high standards. As AI begins to create everything from product designs to ad campaigns, businesses must ensure that this content is not just compelling but also truthful and reliable.

Additionally, while generative AI offers many opportunities for streamlining operations and improving customer interactions, it also brings potential risks. As these AI models become more integral to business operations, they also become attractive targets for adversarial attacks. Thus, robust security measures will be paramount to protect both businesses and consumers.

The rise of generative AI promises to revolutionize the retail and CPG landscape. By 2030, it is likely that over half of all brand development and consumerism will be influenced by this technology. Yet, as we navigate this transition, we must ensure that the human element remains central to all developments. Only by balancing the potential of AI with a respect for human creativity and ethical considerations can we truly unlock the transformative power of AI in the retail sector. And if we don’t see it this way, there may not be a place left for us at all. The technology is already that good, years earlier than anticipated. Sooner than expected, organic, human-made content like this will be in the minority of collective intelligence – Fridman’s Law.

By Web Smith | Edited by Hilary Milnes with art by Christina Williams and Alex Remy